According to the Court’s opinion, the defendant stylist began working for the employer salon soon after graduating from cosmetology school and before he had developed any clients. He signed an employment agreement with a non-competition clause barring him for one year from providing any hair styling, hair care or related services to any client which he had served at the employer at any point during his employment. After working for the employer salon for more than 12 years, he quit in August 2007 and opened his own salon. The employer became suspicious when most of the stylist’s former clients ceased patronizing the employer’s salon and filed suit in January 2008 to enforce the non-competition clause. The trial court entered a TRO in February 2008 prohibiting him from providing any beauty services to the employer’s former clients. The parties then negotiated an injunction which prohibited the stylist from providing for one year – from the date of the February 2008 injunction –any hair styling, hair care or related services to any of the employer’s clients which the stylist had ever served. He also agreed to send each of his clients a letter prepared by the salon informing them that he could no longer serve them and recommending another stylist currently employed by the salon.
The employer salon even offered these clients a discount or free service if they returned. However, it was apparently not enough to shake their loyalty to the errant hair stylist. (I can certainly relate to this). When most of the former clients did not return, the employer hired a private investigator in September 2008 which apparently confirmed that the hair stylist was continuing to routinely serve former clients of the employer. Accordingly, in December 2008 the employer filed a motion to hold him in contempt of the agreed injunction. During the April 2009 contempt hearing, the stylist admitted that he had violated the non-compete and unintentionally violated the TRO and agreed injunction because he had trouble saying “no” to his former clients. He produced a list of 180 clients whom he had served since August 2007 which had been former clients of his employer, but argued that 63 of them were procured personally by him and not by any advertising or promotional campaign by the employer. In all, he claimed that he had made a profit of approximately $37K by serving former clients of his employer in violation of the non-compete, the TRO and the injunction. In response, the employer produced evidence of 39 additional clients which were not on the stylist’s list which the PI had found on a paper calendar in the stylist’s trash.
The employer wanted to be paid for the entire lost profit of $74.1K caused by the stylist’s resignation (i.e., by taking the entire profit he had generated during his last year of employment less the cost of his commission and products) and did not limit itself to the profit lost by the 219 clients served in violation of the non-compete agreement. It also asked to be reimbursed for the $52.6K cost of the PI firm hired to uncover and prove his duplicity and $15.8K in legal fees. The trial court found the stylist in contempt, ordered the stylist to reimburse his former employer only $139K (of the requested $142.5K) and again ordered him to cease serving the clients of his former employer for one year from the date of the contempt order – i.e., until April 2010.
On appeal, the Court affirmed the contempt order. It rejected the stylist’s objections to the salon’s calculation of lost profits on the grounds that he was not provided with the underlying original documents. There is no discussion of the fact that the salon could not have lost all of the profit from his resignation when it still continued to serve and profit from some of his former clients. There is also no discussion of the fact that many – if not most -- of the disputed customers would likely refuse to return to the salon under any circumstances after learning that the salon was more interested in its profits than the condition and style of their hair. However, the court found the salon’s estimate was reasonable in light of the fact that the stylist’s list of the employer’s former clients was materially incomplete in leaving off 39 names.
The court also rejected the stylist’s objection to being required to both pay $139K and cease serving the employer’s former clients for a year. A double penalty is not something that would have been enforced if it had merely been an obligation of the contract. He felt that this was a double punishment and he should only have to pay or cease serving the clients; not both. However, the court of appeals saw it differently:
This is exactly what the trial court did here. The trial court required [the stylist] to disgorge his profits and then ordered [the stylist] to comply with the noncompete clause, which was incorporated into the trial court's agreed entry, for the period of time that [the stylist] had disobeyed the TRO and the agreed entry. These sanctions essentially put the parties in the position they would have been in if [the stylist] had abided by his original agreement for a period of one year not to serve clients to whom he had provided hairstyling services while employed at [the salon]. The extension of the agreed entry for an additional 11 months compensates [the salon] for its future loss of profits. The whole point of the noncompete clause was to give [the salon] the opportunity to retain a client base that it had built through its investment of time, money, and training. The extension gives [the salon] the benefit of its bargain. Accordingly, we cannot say that the trial court abused its discretion in ordering [the stylist] to disgorge his profits and in extending the agreed entry for an additional 11 months. The fourth assignment of error is overruled.Thus, if the stylist had complied with his non-compete, he would have been free to serve anyone and everyone beginning in August 2008 and would not have owed anything to his former employer. Instead, by continuing to violate the non-compete after agreeing to an injunction, he was barred from serving his former clients until April 2010 and required to pay his former employer over $139K. While it is true that an employer cannot have both an injunction and damages as a matter of contract law, the court refused to permit him to benefit from violating both his contract and a court order. Therefore, he was ordered to comply with his contract, to disgorge any profit he made from violating the contract and court order and to compensate the employer for having to enforce the agreement.
Interestingly, one of the appellate judges indicated that he had sympathy for the stylist’s double penalty argument and would have preferred that the employer elect between the two remedies, but could not undo the injunction period once it had already been completed. In other words, the injunction expired before the court of appeals issued its decision.
NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can change or be amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.
